Auditors doubt Reliance Naval's ability to continue as a going concern

The auditors of Reliance Naval and Engineering Limited (formerly Reliance Defence and Engineering Limited) have questioned the ability of the company to continue as a going concern.

Presenting their report on the financial results of the company, the auditors represented by Pathak H.D. & Associates Chartered Accountants expressed their doubt on the claims made by the management and felt that the conditions as elucidated by the management ``indicate the existence of a material uncertainty that may cast significant doubt on the company's ability to continue as going concern''.

The auditors drew attention to the Note no. 3 to the statement regarding preparation of standalone financial results of the company on a going concern basis and also recognition of deferred tax assets (DTA) on tax losses despite the fact that the company has been incurring cash losses, its net worth has been substantially eroded as on 31st March, 2018, loans have been called back by secured lenders, current liabilities are substantially higher than current assets, applications have been made to National Company Law Tribunal (NCLT), Ahmedabad, under Section 9 of the Insolvency Bankruptcy Code 2016 and winding up petitions have been filed before the Gujarat High Court for recovery of their dues by a few operating creditors.

``The company is also of the view that no impairment of its non-current assets is required. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the company's ability to continue as going concern. The appropriateness of assumption of going concern, recognition of DTA and evaluation of recoverable value of its non-current assets is critically dependent upon the approval of company's resolution plan by the secured lenders, the company's ability to raise requisite finance/generate cash flows in future to meet its obligations and to earn profits in future, the note by the auditors said.

The auditors also referred to the note no. 6(a) to the statement regarding applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the company as a corporate guarantor for the loans taken by Reliance Marine and Offshore Limited (RMOL), a wholly-owned subsidiary. ``The management is of the view that the value of securities available in RMOL is sufficient to recover the outstanding dues of IFCI Limited. Accordingly, no provision against the claim under the invoked corporate guarantee is considered necessary. Our opinion is not modified in respect of these matters,'' the auditors said.